What BNPL is, and how it affects DRTV and DTC

The explosion of e-commerce has not only changed the way we buy but how we pay. When the pandemic hit and millions of users flooded to online retailers, several already-existing businesses and ideas were thrown into full gear as they gained popularity. Buy Now, Pay Later, or BNPL, is an installment loan utilized by many online retailers today. With Klarna, Afterpay, Affirm, or simply retailers offering their own plan, BNPL allows consumers to make a purchase and receive it immediately while paying for it over time through a series of installments.

Some plans can come with interest and late fees, but some charge neither. Pricing and plan information varies from company to company.

Allowing a consumer to pay over time can dramatically alter the consumer landscape for marketers. It will give those with poor credit or lack of credit card funds an opportunity to purchase impulse products advertised to them. It also gives marketers a chance to close more sales at minimal risk.

Data shows that consumers buy more when they can pay over time. BNPL gives companies a much wider reach and the ability to expand their target audiences further.

A recent survey found that 1 in 5 U.S. consumers used a BNPL service in the 12 months ended Aug. 20, 2021, and only 1 in 6 of them regretted doing so. 

While this is a boon for marketers with higher price point items, full disclosure of terms is mandatory. In December 2021, the Consumer Financial Protection Bureau announced an inquiry into BNPL, expressing concern about “debt accumulation, lack of regulation, and data harvesting.” The regulator is concerned that borrowers are accumulating too much debt and that consumers’ personal data could be misused.

Last month, the agency demanded information from a handful of the industry’s most prominent players, including Klarna and Afterpay. 

This inquiry notwithstanding, the BNPL option has opened up an excellent opportunity for higher price point items and allows credit-challenged consumers to have an equal playing field for products that otherwise may have been out of reach.